headerimageHelping you in your retirement…

If you are planning to retire in the next few years you are no doubt thinking about how to take an income from the pension fund you have built up. There are several options available and thanks to the changes to pensions rules which have been introduced in recent years, and in particular in April 2015, we now have almost complete freedom on how we take benefits from our pensions. One of the most important is the removal of the requirement to take your pension benefits by a specific age, so if your financial situation is such that you do not need to take an income or lump sum from your pension, you will not be required to do so.

The earliest you can take retirement benefits is from age 55. One popular option is to set up a conventional lifetime annuity, which pays a secure income for life.  It is no longer compulsory to buy an annuity by age 75, although an annuity will remain a sensible option for many.

There are also alternatives to an annuity. These can be higher risk and can be more expensive, but are also more flexible.

On retirement you will normally be given the option of taking a tax-free lump sum which you can spend or save as you wish. This tax free cash is, as the name suggests, totally tax free. You can normally take up to 25% of your pension as tax-free cash.  Tax-free cash is also known as “Pension Commencement Lump Sum”.

Since April 2015, everyone (apart from members of some public sector final salary pension schemes) can take as much or as little of their pension pots as they wish at any time to invest or spend themselves, subject to tax at their marginal rate. This increases the options available to us and has the potential to give us much more control over our income in retirement but also makes it even more important that we obtain proper independent advice before committing ourselves.

Remember – we always offer an initial meeting free of charge at which we can discuss all the options available to you and their advantages and disadvantages.

The options available for taking your retirement benefits include the following:

An annuity is the simplest retirement option and is a secure, taxable income which is payable for the rest of your lifetime. Once set up an annuity can’t normally be changed, so you can rest safe in the knowledge that your annuity income will never run out.

Investment Linked Annuities are designed to give you the opportunity to obtain an income that increases during your retirement. Unlike conventional annuities, these are linked to an underlying investment fund so they are subject to investment risk.

A drawdown pension is an alternative to buying an annuity. You can take your tax-free cash and then leave the remainder of your fund invested while you draw an income and/or make one-off withdrawals from it.  As your money remains invested, the value of your fund can fluctuate up and down.  It is very important that you do not withdraw too much because drawdown is not guaranteed for life – you will only be able to obtain an income for as long as there is money left in your drawdown pot.

Withdrawals will be subject to income tax at the individuals’ marginal rate.  It is very important to not to withdraw too much in any one tax year as this can move you into a higher tax bracket.

Rather than convert the entire pension fund into an annuity all in one go, Phased Retirement allows you to take the benefits of your pension gradually over time, either by setting up an annuity or by moving money into a drawdown pension.

+ Lifetime Annuity

An annuity is the simplest retirement option and is a secure, taxable income which is payable for the rest of your lifetime. Once set up an annuity can’t normally be changed, so you can rest safe in the knowledge that your annuity income will never run out.

+ Investment Linked Annuity

Investment Linked Annuities are designed to give you the opportunity to obtain an income that increases during your retirement. Unlike conventional annuities, these are linked to an underlying investment fund so they are subject to investment risk.

+ Drawdown Pension

A drawdown pension is an alternative to buying an annuity. You can take your tax-free cash and then leave the remainder of your fund invested while you draw an income and/or make one-off withdrawals from it.  As your money remains invested, the value of your fund can fluctuate up and down.  It is very important that you do not withdraw too much because drawdown is not guaranteed for life – you will only be able to obtain an income for as long as there is money left in your drawdown pot.

Withdrawals will be subject to income tax at the individuals’ marginal rate.  It is very important to not to withdraw too much in any one tax year as this can move you into a higher tax bracket.

+ Phased Retirement

Rather than convert the entire pension fund into an annuity all in one go, Phased Retirement allows you to take the benefits of your pension gradually over time, either by setting up an annuity or by moving money into a drawdown pension.

The value of your investment can go down as well as up and you may not get back the full amount invested

Levels and bases of and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor

The Financial Conduct Authority does not regulate taxation and trust advice.